Sales Tax: Economic Nexus Explained
Just want to know if your business has economic nexus? Go directly to our list of Economic Nexus Laws by State.
In brief:
- An e-commerce seller has economic nexus when they exceed a state’s economic nexus threshold. This threshold is generally $100,000 per year or 200 transactions per year, but it varies by state
- Economic nexus is fairly new. The 2018 South Dakota v. Wayfair Supreme Court ruling allowed states to enforce economic nexus laws
- Economic nexus does not replace other forms of sales tax nexus. If you have an office, store, employee, etc. in a state you still have nexus in that state even if you don’t meet that state’s economic nexus threshold
| Further reading: • Discover how you can calculate Texas sales tax with this comprehensive guide — including how to collect and remit sales taxes. • Take a deep dive into sales tax rates in California (sorted by counties). |
E-commerce sellers selling into the United States are required to collect sales tax in states where they have sales tax nexus.
Sales tax nexus occurs when a retailer has a connection to a state. This can mean an office, store, warehouse or other business activity. But sales tax nexus can also be established simply by making a certain number or amount of sales in a state. This is called “economic nexus” and it’s one of the more confusing aspects of US sales tax.
An e-commerce seller is considered to have economic nexus when your sales or transactions exceed a state’s “economic nexus threshold.”
In many states, this threshold is $100,000 in gross sales in a year or 200 separate sales transactions in a year.
Economic Nexus Example
Earnie’s E-Commerce Emporium is based in California but sells to customers all over the country. Earnie’s has sales tax nexus in California because they are based there. But they also sell to many customers in Colorado. Last year, they sold over $300,000 in annual sales to Colorado customers.
Colorado’s economic nexus sales tax threshold is either $100,000 in annual sales or 200 transactions. This means that even though Earnie’s E-Commerce Emporium isn’t based in Colorado and they have no employees, stores or warehouses there, they have economic nexus in Colorado and are required to collect Colorado sales tax.
How is economic nexus legal?
Even just a few years ago, the concept of economic nexus was controversial.
Before the Supreme Court’s June 21, 2018 decision in South Dakota v. Wayfair, e-commerce sellers were only required to collect sales tax in states where they had some sort of physical presence such as a store, employee or inventory.
However, states had a complaint. States use sales tax collected to fund budget items like schools and roads, and they realized that e-commerce sellers not collecting sales tax was leaving them at a disadvantage. (Technically, if a consumer buys a product tax free, they are required to pay “use tax” on that item to their state. However, this is nearly impossible to enforce on consumers, especially on small purchases.)
The way states saw it, large online retailers like Wayfair, Overstock or NewEgg were making millions of dollars in sales to buyers in their states but had an unfair advantage in that they weren’t required to collect sales tax from these buyers and remit it back to the state's treasury.
Operating on that assumption, states like South Dakota decided to legally test the idea that e-commerce sellers were not required to collect sales tax from buyers in their state. They sued retailers like Wayfair et. al. and the case went all the way to the Supreme Court.
The Supreme Court agreed with the states. The Wayfair ruling allows states to pass economic nexus sales tax laws.
How Economic Nexus Changed Sales Tax Collection for E-Commerce Sellers
Pre-Wayfair, retailers were generally only required to collect sales tax in states where they had a physical presence. This physical presence could be anything from having an office or store in a state to some forms of advertising or having a 3rd party affiliate in a state.
But post-Wayfair, many online sellers found themselves with sales tax nexus in more states. This means e-commerce companies are required to register for sales tax permits in their economic nexus states, set up sales tax collection on all e-commerce sales channels, and file and remit sales tax in multiple states.
Pre-and Post-Wayfair Sales Tax Collection Example
Pre-Wayfair, even a huge online store like Overstock.com was only required to collect sales tax in states where they had physical presence.
So even though they might sell millions in sales per year into a lightly populated state like South Dakota, they were not required to collect sales tax on their sales. (Buyers who purchase an item and don’t pay sales tax are supposed to pay “use tax” to the state on that purchase, but most consumers don’t even know about this obligation.)
So the way South Dakota saw it, they were missing out on vital sales tax revenue they used to pay for budget items like hospitals and roads.
Now, post-Wayfair, South Dakota is allowed to require that large companies like Overstock.com collect sales tax from buyers in their state. This is because Overstock (and many, many other e-commerce companies) meet South Dakota’s threshold of $100,000 in sales or 200 sales transactions in the current or last calendar year.
Common Questions about Economic Nexus
How do I know when I have economic nexus?
Zamp! Zamp’s Economic Nexus Calculator will alert you when you have economic nexus in a new state.
How does it work? We integrate with your online stores, ERPs and marketplaces and alert you when you are approaching or have crossed over a state’s economic nexus threshold. No more trying to count individual transactions into a state or dreading doing your business’s books each month.
I have physical presence in a state, but do not meet that state’s economic nexus threshold. Do I still need to collect sales tax there?
Yes. Economic nexus did not override any other forms of sales tax nexus. If you have an office, store, employee, etc. in a state you still have nexus in that state even if you don’t meet that state’s economic nexus sales or transactions threshold.
Does economic nexus apply to income tax?
In the US, Federal Public Law 86-272 prevents states from requiring that businesses who only solicit sales of tangible personal property pay income tax. However, this law is quietly being eroded. You can read more about economic nexus and income tax here. We recommend speaking with a sales tax expert should you have any questions about whether sales tax nexus also leads to an income tax obligation.
Economic Nexus Sales Tax Laws by State
This chart tells you each state’s economic nexus threshold. This may only be a dollar amount, such as $100,000 in sales, or this may also include a transaction amount, such as 200 or more separate transactions.
When reading economic nexus threshold information, be sure to look for tricky language. For example, some states only count retail sales, but others may count “gross receipts” which include wholesale sales. Some states include sales made through 3rd party marketplaces when it comes to calculating economic nexus, while others do not.
Last but not least, if a state has a transaction threshold, look for the tricky “and” or “or.” Some states require that a retailer have “$100,000 in sales AND 200 or more transactions” while other states require that a retailer have “$100,000 in sales OR 200 or more transactions.” This can be a very important distinction, especially for retailers with a high volume of small dollar sales transactions.
A note on sources: When possible we have linked to the state taxing authority’s guidance for retailers when it comes to economic nexus. When the state hasn’t issued that guidance, we’ve linked to the state’s law regarding economic nexus.
As always, we recommend contacting the state or a dedicated sales tax expert for questions specific to your business.
| State | Economic Nexus Threshold | Effective Date | Source |
| Alabama | More than $250,000 in retail sales during the previous calendar year | October 1, 2018 | Alabama Department of Revenue |
| Alaska | Alaska has no statewide sales tax, but some municipalities have a sales tax. For those, the threshold is $100,000 in gross annual sales or 200 annual transactions | January 1, 2020 | Alaska Remote Sellers Sales Tax Commission |
| Arizona | Starting in 2021, if they made gross sales or proceeds of $100,000 or more in the previous or current calendar year. (The 2020 threshold was $150,000 and the 2019 threshold was $200,000.) | October 1, 2019 | Arizona Department of Revenue |
| Arkansas | Taxable sales more than $100,000 or more than 200 transactions during the previous or current calendar year | July 1, 2019 | Arkansas Department of Finance and Administration |
| California | More than $500,000 in sales during the preceding or current calendar year | April 1, 2019 | California Department of Tax and Fee Administration |
| Colorado | Sales exceed $100,000 in the preceding or current calendar year | June 1, 2019 | Colorado Department of Revenue |
| Connecticut | Gross receipts of at least $100,000 AND 200 transactions during the 12-month period ending on Sept 30 | December 1, 2018 | Connecticut Department of Revenue Services |
| Florida | Sales exceed $100,000 during the previous calendar year | July 1, 2021 | Florida Department of Revenue |
| Georgia | Gross sales exceeding $100,000 or 200 retail sales transactions in the previous or current calendar year | January 1, 2020 | Georgia Department of Revenue |
| Hawaii | Gross sales or proceeds of $100,000 or more and 200 or more separate transactions in the preceding or current calendar year | July 1, 2018 | Hawaii Department of Taxation |
| Idaho | Sales exceed $100,000 in the previous or current calendar year | June 1, 2019 | Idaho State Tax Commission |
| Illinois | Gross revenue exceeds $100,000 or seller makes more than 200 separate transactions during the previous 12-month period | October 1, 2018 | Illinois Revenue |
| Indiana | Gross revenue exceeds $100,000 or seller makes 200 or more separate transactions during the previous or current calendar year | October 1, 2018 | Indiana Department of Revenue |
| Iowa | Gross revenue exceeded $100,000 in the previous or current calendar year | January 1, 2019 | Iowa Department of Revenue |
| Kansas | Gross receipts exceeded $100,000 in the previous or current calendar year | July 1, 2021 | Kansas Department of Revenue |
| Kentucky | Gross receipts exceed $100,000 or seller makes 200 or more separate transactions in the previous or current calendar year | July 1, 2018 | Kentucky Department of Revenue |
| Louisiana | Gross revenue exceeds $100,000 or more in the previous or current calendar year | July 1, 2020 | Louisiana Department of Revenue |
| Maine | Gross revenue in sales of $100,000 or more annually | July 1, 2018 | Maine Revenue Services |
| Maryland | More than $100,000 in sales or 200 or more transactions during the previous or current calendar year | October 1, 2018 | Comptroller of Maryland |
| Massachusetts | Sales exceed $100,000 in the previous or current taxable year | October 1, 2019 | Massachusetts Department of Revenue |
| Michigan | More than $100,000 in retail sales or 200 or more transactions in the previous calendar year | October 1, 2018 | Michigan Department of Treasury |
| Minnesota | Retail sales exceeded $100,000 or seller made 200 or more retail sales in the previous 12 months | October 1, 2019 | Minnesota Department of Revenue |
| Mississippi | More than $250,000 in sales in the previous 12 months | September 1, 2018 | Mississippi Department of Revenue |
| Missouri | Sales of tangible goods exceed $100,000 annually | January 1, 2023 | Missouri Department of Revenue |
| Nebraska | More than $100,000 in sales or 200 or more separate transactions during the previous or current calendar year | April 1, 2019 | Nebraska Department of Revenue |
| Nevada | Gross receipts more than $100,000 or 200 or more retail sales | October 1, 2018 | Nevada Department of Taxation |
| New Jersey | Gross more than $100,000 or has 200 or more separate transactions in the previous or current calendar year | November 1, 2018 | New Jersey Division of Taxation |
| New Mexico | Taxable gross receipts exceed $100,000 in the previous calendar year | July 1, 2019 | New Mexico Taxation and Revenue Department |
| New York | Gross receipts exceed $500,000 and seller makes more than 100 sales of tangible personal property in the previous four sales tax quarters | June 21, 2018 | New York Department of Taxation and Finance |
| North Carolina | Gross receipts exceed $100,000 or seller makes 200 or more transactions in the previous or current calendar year | November 1, 2018 | North Carolina Department of Revenue |
| North Dakota | Sales exceed $100,000 in the previous or current calendar year | October 1, 2018 | North Dakota Office of State Tax Commissioner |
| Ohio | Gross revenue exceeds $100,000 or seller makes 200 or more separate transactionsIn the previous or current calendar year | August 1, 2019 | Ohio Department of Taxation |
| Oklahoma | More than $100,000 in aggregate sales | November 1, 2019 | Oklahoma Tax Commission |
| Pennsylvania | Sales exceed $100,000 in the previous 12 months | July 1, 2019 | Pennsylvania Department of Revenue |
| Rhode Island | Gross $100,000 or more or make 200 or more separate transactions in the previous calendar year | July 1, 2019 | Rhode Island Division of Taxation |
| South Carolina | Sales exceed $100,000 in the previous or current calendar year | November 1, 2018 | South Carolina Department of Revenue |
| South Dakota | Sales exceed $100,000 in the previous or current calendar year | November 1, 2018 | South Dakota Department of Revenue |
| Tennessee | Sales exceed $100,000 in the previous 12-month period | October 1, 2019 | Tennessee Department of Revenue |
| Texas | Total revenue exceeds $500,000 during the preceding 12 calendar months | January 1, 2019 | Texas Comptroller |
| Utah | Sales exceed $100,000 or seller makes 200 or more transactions into the state per year | January 1, 2019 | Utah State Tax Commission |
| Vermont | At least $100,000 in sales or at least 200 transactions during the previous 12-month period | July 1, 2018 | Vermont Department of Taxes |
| Virginia | Retail sales exceed $100,000 or seller makes 200 or more separate sales transactions in the previous or current calendar year | July 1, 2019 | Virginia Tax |
| Washington | More than $100,000 in cumulative gross receipts in the current or prior year | October 1, 2018 | Washington Department of Revenue |
| Washington DC | More than $100,000 in gross receipts or 200 or more retail sales in the previous or current calendar year | January 1, 2019 | Washington DC Office of Tax and Revenue |
| West Virginia | More than $100,000 in sales or 200 or more separate transactions in the preceding or current calendar year | January 1, 2019 | West Virginia Tax Division |
| Wisconsin | Sales exceed $100,000 in the previous or current calendar year | October 1, 2018 | Wisconsin Department of Revenue |
| Wyoming | More than $100,000 in sales or more than 200 transactions in the preceding or current calendar year | February 1, 2019 | Wyoming Department of Revenue |
